The Republican-controlled House of Representatives has recently approved a comprehensive tax and spending package, aligning with many of President Donald Trump’s priorities. This legislation, dubbed by Trump as ‘One Big Beautiful Bill,’ now moves to the Senate for further consideration. Among the various provisions, the
state and local tax (SALT) deduction
has emerged as a focal point of debate. The current $10,000 cap, established by the Tax Cuts and Jobs Act (TCJA) of 2017, is under scrutiny.
Before the TCJA, taxpayers who itemized deductions could claim an unlimited deduction for state and local taxes, including property taxes. However, the alternative minimum tax reduced the benefit for some high-income earners. The $10,000 cap has been particularly contentious in high-tax states like New York, New Jersey, and California. The House Republicans have proposed increasing the SALT deduction limit to $40,000, with a phase-out for incomes above $500,000, effective in 2025.
As the bill progresses to the Senate, experts predict that the final SALT deduction limit may be less than $40,000. Some Republican senators have voiced concerns about the proposed increase, which was championed by moderate House Republicans. Alex Muresianu, a senior policy analyst at the Tax Foundation, noted that maintaining a limit closer to the current $10,000 ‘seems a very natural place to start,’ though the final figure could be higher.
The Senate will employ the ‘budget reconciliation’ process, allowing the bill to pass with a simple majority and bypassing the filibuster. This procedural strategy is crucial for advancing the legislation, given the Senate’s political dynamics. Once the Senate votes, the House must approve any amendments, a potentially challenging task given the narrow Republican majority.
The SALT deduction debate is expected to be a significant point of contention. Lawmakers from high-tax states are likely to push for a higher limit, while fiscal conservatives may advocate for a more restrained approach.
